Commercial Union and General Accident, two of the UK's largest insurance companies, yesterday attempted to create one of the biggest insurers in Europe with a pounds 15bn merger that will lead to the loss of 3,000 British jobs.

Executives of both companies said the merger would give birth to a world- scale, international insurance group which would rank ninth in continental Europe by market value.

World-wide, 5,000 jobs will go in an effort to extract pounds 225m a year in cost savings after the merger is completed. The two companies yesterday said a one-off sum of pounds 300m would be spent in order to implement the savings.

The combined group, to be known by the three initials CGU, will have a world-wide staff of roughly 53,000. It will be the second biggest general insurer in the UK, after Royal & Sun Alliance, with a market share of 10 per cent, and the fifth biggest life insurer, holding more than 5 per cent of the market.

If shareholders approve the merger, Sir John Carter, chief executive of Commercial Union, will retire in June in favour of Bob Scott, chief executive of General Accident. Pehr Gyllenhammar, currently chairman of CU, will lead a board consisting of four directors from CU and three from GA.

Sir John yesterday said there were significant new opportunities in Europe as private savings and insurance policies were used to top up state protection. "Both companies believe that CGU will be much more strongly positioned to capitalise on these opportunities than either company could on its own," he said.

Unions yesterday gave a tentative welcome to the merger, calling the combined company a "positive force" which could survive in a competitive market. But they warned they would need firm assurances on compulsory redundancies.

Roger Lyons, general secretary of the Manufacturing, Science and Finance union, yesterday said: "The MSF will be seeking urgent consultations and agreement with both GA and CU to avoid any involuntary redundancies arising from this proposed merger.

"Financial sector mergers are threatening too many quality jobs and careers and so the MSF will be taking all necessary steps to safeguard the thousands of jobs in Scotland, York, Stevenage and other centres, while seeking to retain a realistic branch network across the UK."

Executives said they hoped to shed jobs among the 10 per cent of staff that left the companies each year. But they refused to rule out compulsory redundancies. Directors were unable to specify how many of the group's branches would disappear but said closures would be spread across the UK.

Industry observers expect many of the job losses to fall in London, while the group keeps slimmed-down operations in Glasgow, York, Dundee and Croydon.

The merger may lead to an improvement in job prospects in Perth, home of GA's head office, where the new group will house its combined general insurance arms, leading to an expansion of its Scottish staff. General insurance makes up the majority of new business going to both groups.

Mr Scott said the pounds 225m in cost savings would flow from shedding staff, cutting surplus property and by using the same IT systems. IT is the biggest element of capital expenditure at Commercial Union. "It is becoming increasingly complex and increasingly costly to establish IT systems. Merging these two companies will give us what we need to establish common systems to save on IT costs," Mr Scott said.

The City reacted coolly to the deal and sharply marked down the shares in both companies. CU slipped to 1103p from 1130p while GA dropped by 85 points to 1370p.